GST input is available on credits that have a connection with the manufacture of final product or with the rendering of the service.
Such credit shall certainly be available on raw materials used for manufacture or on inputs used for the provision of service; but will it be available on goods utilised for testing?
Such was the question in the case of Flex Engineering Ltd. v/s CCE (2012) 276 ELT 153 before the Supreme Court of India.
On one hand, testing is necessary for the production of the final product, whereas on the other hand, it can be said that testing is not linked to the production, per se, of the final product but merely to the research and development of the final product.
The Supreme Court held that the testing of the product is linked to the production of the final product, as none of the final production can take place without the completion of the testing phase. The Court therefore allowed the assessee to utilise the credits of the products utilised for testing.
In another case, a company had installed telephones at the premises of the employees of the company. The company was availing GST inputs on the expenses incurred for the telephones.
The question arose whether GST input shall be allowed on such expenses or not?
The Commissioner (Appeals) disallowed such expenses from the GST input availment on the grounds that such inputs did not contribute in any way to the production of final product or business activity.
The company then decided to appeal to the Tribunal.
The Tribunal herein agreed with the view of the assessee and overturned the opinion of the Commissioner (Appeals). It stated that the mere fact that the activity did not contribute to the manufacturing activity could not be held against the assessee to disallow the GST input.
In such a scenario, the GST input was allowed to the assessee.
The case was Ace Glass Containers vs. CCE (2010) 250 ELT 110.
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